Global News Carriers eye Red Sea transits after Houthi rebels pledge restraint

Ocean carriers say they will only return to Red Sea transits “when it is safe to do so,” despite an announcement Sunday by Yemen’s Houthi militants that they will limit their attacks on shipping to Israel-affiliated vessels.

The announcement was made in an email to the Yemen-based Humanitarian Operations Coordination Center (HOCC) following the start of a 42-day ceasefire in Gaza between Israel and Hamas, but the ocean carriers’ position on a return to the Red Sea remains unchanged.

“We will closely analyze the latest developments and their impact on the security situation in the Red Sea. Otherwise, the following applies unchanged: we will return to the Red Sea when it is sufficiently safe to do so,” Hapag-Lloyd spokesman Tim Seifert told the Journal of Commerce Monday.

Maersk released a similar statement Monday with the carrier calling developments in the region “positive.”

“We will continue monitoring the situation in the Middle East closely and will return to the Red Sea and sailing through Bab al-Mandab when it is safe to do so,” Maersk noted. “It is still too early to speculate about timing, but these developments are a needed step in the right direction.”

Houthi attacks on shipping began in November 2023 in support of Hamas after Israel launched its military operations in Gaza. Most commercial vessels have avoided the Suez for the past 14 months amid ongoing attacks by Houthi militants operating in Yemen, forcing ships to divert away from the Red Sea to the longer route around the Cape of Good Hope. The Houthi rebels in early 2024 said they would only attack Israel-linked vessels, but this was not borne out.

Jack Kennedy, associate director of country risk for the Middle East and North Africa at S&P Global Market Intelligence, parent company of the Journal of Commerce, said last week there might be a relative decrease in the frequency of attacks against shipping after the ceasefire, but that would likely reflect degradation of Houthi capability after US and Israeli airstrikes. Flooding capacity As much as carriers extol the virtues of a return to Red Sea transits, the consensus among analysts is that it will lead to a period of supply chain disruption with ship schedules thrown out, followed by collapsing rates as excess capacity floods the market.

In a report titled Exceptional profits period drawing to a close, investment bank Jefferies noted that with rates expected to weaken through 2025, 90% of container ships typically using the shorter Suez route diverted around Africa, removing over 12% of fleet capacity.

“Last year was one of the best years ever for the container industry as the sudden removal of this capacity, along with strong trade growth, pushed capacity utilization to an average of 87.5%,” noted the Jefferies report, well above the 75% utilization in 2024 had there been no diversions.

“We expect continued positive earnings for the sector but a repeat of 2024 results seems difficult to achieve. The demand picture over the medium term remains a major question as tariffs and reciprocal tariffs point to stunted trade growth in the coming years.” Downward pressure on spot rates Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, said in his Sunday Spotlight newsletter that a return to transits through the Red Sea would be good news for shippers and consumers, but bad news for carriers.

“The high freight rates are clearly supported by the severe capacity absorption from the round-Africa services as a consequence of the Red Sea crisis,” he wrote. “A reversal back to Suez would bring the global supply-demand balance back to the level we saw towards the end of 2023. This in turn means that — after a somewhat turbulent period with port congestion issues in Europe — spot rates will drop sharply.”

Average Asia-North Europe spot rates in the last week of November 2023 were $1,379 per FEU, according to rate benchmarking platform Xeneta. By mid-July 2024 the rate peaked at $8,558/FEU, and although falling through the second half, the spot rate has remained more than double the price recorded in November 2023.

A return to the shorter voyages through the Red Sea will dramatically change the supply-demand picture and put significant downward pressure on rates, Peter Sand, chief analyst at Xeneta, wrote in a report Monday.

“Combined with record deliveries of new ships, the market will be flooded with capacity, with carriers needing to remove around 1.8 million TEUs to retain the status quo,” he said.

“Scrapping of ships will increase and carriers have become much better at capacity management in recent years, but it is unlikely this will be enough to prevent freight rates from collapsing,” he added.

Carriers have been playing down the impact of overcapacity following the resumption of transits through Suez, pointing to an increase in scrapping (which has been close to zero for the last few years) and the ability to slow steam ships that have been at full speed since Africa diversions began.

Still, Murphy said from a supply-demand perspective, “it is hard to see any other outcome than a rapid decline back towards the depths seen in 2023. At least for a temporary period,” he noted, adding that the market drop after the Suez route’s reopening would not be a “soft landing.”